While not common knowledge to many financial advisors, IRA, SEP, SIMPLE and other tax-deferred retirement plan funds can be invested in real estate properties. Why? To offer the real estate investor the opportunity to invest in assets that are more familiar to the investor than the conventional investment world of stocks, mutual funds, and bonds.
The difficulty in pursuing this investment alternative is in finding assistance from CPA’s, attorneys, and financial planners. The interest is an excellent resource tool for information regarding this topic, so type “real estate IRA” into any search engine you utilize. The retirement plan trustees that generally allow real estate investments are referred to as “special asset trustees” and several that you will immediately recognize on the internet are:
Some of the more difficult issues involved with real estate properties in retirement plans are first, mortgage properties and second, who manages the properties. However, the special asses trustees listed above have different positions on these two issues. The investor may need to contact more than one trustee to acquire the desired property.
The other investment strategies that provide an opportunity to make a significant profit in a short period of time (i.e. fix-up, change use); may be perfect investment properties to hold through tax-deferred funds. The primary reason being, the opportunity to defer paying tax on the profit, with an anticipated large gain to be realized. By deferring paying taxes, you will have more funds for similar additional opportunities.
Since most of these gains will be short term or realized in less than one year, they would typically be taxed at the taxpayer’s marginal tax rate. Therefore, these particular investments might provide a distinct advantage if they are acquired using tax deferred retirement plans where the tax on the gain will be deferred until withdrawn.